Weekly Market Report 02-25-2005

S&P 500 and Dow Jones Index erase loses

By Rick Paler


Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.

The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.

In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.

Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.

H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.

Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.

Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.

Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.

Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.

Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.

Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.

After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.

In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.

Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.